(Updates with employees’ lawyer’s comment in fifth paragraph.)
Oct. 19 (Bloomberg) -- Citigroup Inc. and McGraw-Hill Cos. won appeals-court decisions upholding dismissal of lawsuits brought by employees claiming their retirement plans lost money invested in company stock.
The U.S. Court of Appeals in Manhattan upheld the dismissals in companion rulings today. In 2009, U.S. District Judge Sidney Stein in New York found that Citigroup, the third- biggest U.S. lender, didn’t breach its duty to the workers by offering Citigroup stock as an investment option. In February 2010, U.S. District Judge Richard Sullivan ruled similarly in favor of McGraw-Hill, the finance and media company that is splitting into two.
The Citigroup plan fiduciaries “didn’t abuse their discretion here,” the appeals court wrote in that ruling.
The Citigroup suit was filed on behalf of 150,000 employees covered by two retirement plans. The plaintiffs in the McGraw- Hill case participated in one of two defined-contribution plans offered by the company. Both cases were brought under the federal Employee Retirement Income Security Act of 1974, also known as ERISA. Both companies are based in New York.
“We’re totally disappointed with the decision,” Marc I. Machiz, a lawyer for the Citigroup employees, said in a phone interview. “We’re disappointed both for the Citigroup employees who are not going to get a remedy for their losses and because the decision makes it difficult or impossible to get a remedy from a company that mismanages its plan.”
Machiz, of Cohen Milstein Sellers & Toll PLLC in Philadelphia, said it was likely the Citigroup plaintiffs would as the full appeals court to rehear the case.
Edwin Mills, a lawyer for the McGraw-Hill employees at Stull, Stull & Brody in New York, didn’t immediately return a call for comment on the decision.
The Citigroup plaintiffs said the bank should have known that investing in its own stock was imprudent and that it breached its duty by not providing full information about its exposure to subprime mortgages.
The McGraw-Hill plaintiffs claimed the company violated fiduciary duties by offering employees its stock knowing the shares were likely to fall over allegations its Standard & Poor’s unit gave improperly high ratings to mortgage-backed securities.
“We hold that the facts alleged by plaintiffs are, even if proven, insufficient to establish that the defendants abused their discretion by continuing to offer plan participants the opportunity to invest in McGraw-Hill stock,” the appeals court wrote in that case.
In his dissent in the 2-to-1 decisions, U.S. Circuit Judge Chester J. Straub said the current and former Citigroup employees invested in the plans “at the cajoling of Citigroup,” which misrepresented its “dismal financial outlook and its massive subprime exposure.”
Citigroup’s stock dropped by more than 74 percent over one year for a market-value loss of more than $200 billion, Straub said.
“Today’s majority opinion ensures that such losses will go remediless,” he wrote.
The cases are Gray v. Citigroup Inc., 09-3804, and Gearren v. McGraw-Hill Cos., 10-792, 2nd U.S. Circuit Court of Appeals (Manhattan).
--With assistance from David Glovin in New York. Editors: Glenn Holdcraft, Fred Strasser
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